The article in the NY Times, “Buy American, I Am” written by Warren Buffett is spreading like wild fire across the media. With the markets in an extremely oversold state due to over inflated fears of recession, it’s comforting to see top investors like Warren Buffett, buying aggressively.
Even though I lived through the tech bubble, big declines in the market can still give me slight nausea. Regardless though, they should be viewed as an opportunity for those with long investment time lines.
Here why Mr. Buffett is buying now:
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Here are some reasons why Mr. Buffett thinks that this downturn is no different than the last:
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
As a lot of you have sold your equities, you’re probably sitting on a lot of cash. Here’s why Mr. Buffett thinks that cash is a bad idea:
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Warren Buffett is the one of, if not, the greatest investor of all time. He buys when the markets are fearful and when stocks get cheap. He’s buying now, are you?If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).